Issue #61

Analyzing the AI-driven tech platforms hitting record profitability and new "Buy" ratings.

The digital product boom isn’t just about the gadgets we hold or the apps we download—it’s being fueled by a massive, invisible shift in how the world’s biggest brands find, engage, and convert customers. As the internet becomes more fragmented and social media "walled gardens" grow more expensive, the real value is shifting to the infrastructure of the Open Web and the Digital Transformation engines that power it.

The winners of this new era aren't just selling ads; they are building the operating systems for global marketing and the recommendation engines that dictate what 1.5 billion people see every day.

👉 One company is a "challenger network" that has moved beyond traditional advertising to become the digital transformation partner for the Fortune 500, integrating AI and data at a massive scale.

👉 The other is the undisputed king of the Open Web, recently securing a 30-year deal to power the digital recommendations for one of the internet’s largest media icons.

👉 Both have hit critical profitability milestones, are buying back their own stock, and sit at the intersection of AI-driven performance and global commerce.

In this edition, we break down the two marketing powerhouses that have evolved into high-margin tech platforms—and why they are the essential "picks and shovels" for the next leg of the digital product explosion.

Stagwell (NASDAQ: STGW)

Stagwell (NASDAQ: STGW) is a modern, digital-first marketing network designed to challenge the traditional "Big Five" advertising holding companies. By integrating creative excellence with high-end technology, Stagwell supports a vast ecosystem of global brands, helping them navigate the complexities of the digital economy. Its focus on the "Marketing Cloud" and AI-driven solutions positions it at the forefront of the digital product boom.

Business Model and Revenue Streams 📦

Stagwell’s business model is built on a "federation" of specialist agencies that collaborate under a single technological umbrella. Unlike legacy competitors, Stagwell focuses heavily on digital transformation and performance-based results. The company operates through several key revenue streams:

• Integrated Marketing and Creative: This remains the largest segment, accounting for roughly 45–55% of net revenue. It includes brand strategy, content production, and experience design, primarily sold through retainers and project-based fees.
• Media Planning and Performance: Representing approximately 30–35% of revenue, this segment manages search, social, and connected TV (CTV) advertising. It thrives on the growth of digital ad spend, which now commands nearly 70% of global marketing budgets.
• Stagwell Marketing Cloud (SMC) & SaaS: A high-margin, scalable revenue stream that provides AI-powered tools for PR, influencer marketing, and data analytics. This includes platforms like PRophet and the recently acquired BERA.ai, which offer recurring subscription income.
• Communications and Public Affairs: A significant growth driver, especially during election cycles. Its "Advocacy" business sees massive surges in revenue as political and issue-based campaigns scale their digital outreach.

Stagwell's performance is sensitive to macroeconomic policies, particularly interest rates and inflation, which influence corporate marketing budgets. However, the company has mitigated these risks by shifting toward high-growth corridors like the MENA (Middle East and North Africa) region and doubling down on AI. While traditional ad spending can be cyclical, Stagwell’s digital transformation services are often viewed by clients as essential infrastructure, providing a buffer during economic fluctuations.

Recent Performance and Corporate Developments 📈

Stagwell has demonstrated impressive momentum through 2025, driven by record new business wins and a disciplined acquisition strategy.

Q3 2025 Financial Highlights: 💰

• Revenue Growth: Total revenue reached $743 million, a 4% increase year-over-year. More importantly, net revenue excluding the cyclical Advocacy segment grew by 10%, highlighting the strength of its core commercial business.
• Profitability: The company reported a net income of $25 million for the quarter, a massive leap from $3 million in the same period the previous year.
• Digital Momentum: Digital Transformation revenue grew 12% year-over-year, now accounting for over 50% of total revenue.
• New Business: Stagwell secured $122 million in net new business during Q3, with major mandate expansions from global giants like Starbucks, Adobe, and Visa.

Strategic Initiatives and Mergers: 🤝

Stagwell is an aggressive consolidator in the marketing space. In 2024 and 2025, it completed over a dozen acquisitions, including Consulum (a government advisory firm in the Middle East), JetFuel (experiential marketing), and BERA.ai. A major development in late 2025 was the announcement of a groundbreaking partnership with Palantir, which aims to integrate advanced AI and data analytics across the Stagwell Marketing Cloud, further distancing the company from legacy advertising firms.

Profitability and Fair Value 🎯

Stagwell has successfully transitioned into a phase of sustained profitability. Its "5 x 5" plan—a roadmap to reach $5 billion in revenue and $1 billion in adjusted EBITDA—is well underway.

The company's path to value is centered on operating leverage. By offshore delivery of certain services and automating content production through "The Machine" (its AI collaboration with Adobe), Stagwell is expanding its margins. While its GAAP P/E ratio has historically appeared high due to acquisition-related costs, its Adjusted EPS guidance for 2025 of $0.75 to $0.88 suggests a much more attractive valuation for growth-oriented investors. Many market observers consider the stock undervalued compared to its digital-first peers, especially given its strong free cash flow conversion.

Analyst Estimates and Ratings 📊

• Consensus Rating: The consensus among analysts is a "Strong Buy" or "Moderate Buy." Currently, approximately 67% to 75% of covering analysts have a positive rating on the stock.
• Price Target: The average 12-month price target sits near $8.15, with some bullish analysts at firms like Rosenblatt setting targets as high as $9.00. This represents a significant potential upside from recent trading levels in the $5.00 range.
• Recent Momentum: In the last 30 to 60 days, several firms have reiterated their "Buy" ratings, citing the Palantir partnership and the company's ability to beat earnings estimates as key catalysts.

Investor-Focused Takeaway: Is STGW Right for Your Portfolio?

Stagwell offers a high-growth alternative to legacy advertising stocks. It is effectively a "tech-enabled" marketing play that benefits directly from the digital product boom and the integration of AI into global commerce.

What to Watch in the Near Term: 📈

• AI Monetization: Look for the continued rollout of AI-powered tools within the Stagwell Marketing Cloud and how they impact margin expansion.
• International Scale: Monitor the growth in the MENA and APAC regions, as these are expected to outpace U.S. growth in the coming years.
• Debt Deleveraging: Watch for the company to move its net leverage toward the low-2x range as it scales EBITDA.

Recommendation:

Stagwell (STGW) is a compelling pick for investors looking to capitalize on the intersection of marketing and technology. With a "Strong Buy" consensus and a clear strategy to dominate the AI-driven marketing landscape, it remains a top contender in the digital transformation space.

Taboola (NASDAQ: TBLA)

Taboola (NASDAQ: TBLA) is a global leader in the "Open Web" advertising market, serving as a powerful alternative to the walled gardens of Google and Meta. By using deep learning AI to recommend content, products, and services across thousands of premium publisher sites, Taboola has become an essential partner for digital properties looking to monetize their audiences outside of social media.

Business Model and Revenue Streams 📦

Taboola’s business model centers on creating a symbiotic marketplace between publishers (who have audiences) and advertisers (who want to reach them). Its technology powers the "Recommended for You" sections found on major sites like Yahoo, CNBC, and Business Insider.

• Cost-Per-Click (CPC) Revenue: Over 90% of Taboola’s revenue is generated through a performance-based model. Advertisers pay only when a user engages with their content. This makes it a highly attractive option for brands focusing on measurable ROI.
• Traffic Acquisition Cost (TAC) & XTAC: Taboola operates on a revenue-share model. For every $100 earned, it pays approximately $65 back to publishers (the Traffic Acquisition Cost). The remaining $35 is known as ex-TAC Gross Profit, which is the primary metric the company uses to measure its operational health.
• Taboola News and Bidded Supply: This high-growth segment involves pre-installing Taboola’s recommendation engine directly on mobile devices (such as Android phones from Samsung and Xiaomi). This provides a steady stream of "exclusive supply" that doesn't rely on third-party cookies.
• eCommerce and Smart Solutions: Through its acquisition of Connexity, Taboola has expanded into retail media, allowing brands like Walmart and eBay to display products directly within editorial content, capturing "intent-based" shoppers.

While Taboola is sensitive to general advertising demand and interest rate policies, its shift toward performance advertising makes it more resilient than traditional brand-awareness platforms. In a tighter economy, advertisers flock to platforms like Taboola where they can track every cent of their spend.

Recent Performance and Corporate Developments 📈

Taboola has entered a "new era" following the successful launch of its performance platform, Realize, and its massive 30-year partnership with Yahoo.

Q3 2025 Financial Highlights: 💰

• Total Revenue: Reported at $496.8 million, a 14.7% increase year-over-year, significantly beating market expectations.
• Net Income: The company reached a major milestone by turning a GAAP net profit of $5.2 million, a sharp turnaround from a $6.5 million loss in the previous year.
• Free Cash Flow: Taboola demonstrated strong cash generation, producing $46.3 million in the quarter, representing a 96% conversion rate from Adjusted EBITDA.
• Share Buybacks: Demonstrating confidence, management has aggressively repurchased roughly 14% of the company’s outstanding shares throughout 2025.

Strategic Initiatives and Mergers: 🤝

The most significant development is the full integration of the Yahoo partnership, which has effectively doubled Taboola’s available ad inventory. In late 2025, Taboola also announced an expanded multi-year deal with Reach PLC, the UK’s largest commercial publisher. On the tech front, the company is leveraging Generative AI to help advertisers automatically create high-performing ad creatives, further lowering the barrier to entry for smaller "scaled" advertisers.

Profitability and Fair Value 🎯

Taboola has successfully transitioned from a high-growth "burn" phase to a disciplined, profitable operation. Its path to sustained value is built on its Realize AI platform, which uses predictive modeling to increase click-through rates. Higher engagement directly translates to higher margins for Taboola without increasing its costs.

In terms of fair value, the stock is viewed as significantly undervalued by several valuation models. While the current trading price hovers around $4.25, some Discounted Cash Flow (DCF) analyses suggest a fair value closer to $7.15 to $10.00. The company’s focus on converting 60-70% of its ex-TAC gross profit into free cash flow makes it a "cash cow" in the making, even if its core revenue growth remains in the moderate double digits.

Analyst Estimates and Ratings 📊

• Consensus Rating: The stock currently carries a "Strong Buy" consensus. In the last 30 days, analyst sentiment has improved significantly following the Q3 earnings "beat and raise."
• Price Target: The average 12-month price target is approximately $4.80, but recent initiations, such as from Rosenblatt Securities, have set targets as high as $6.00, implying a 40%+ upside.
• Zacks Rank: Taboola often holds a high Zacks Rank (Rank 1 or 2), marking it as a top momentum stock within the technology sector for 2026.

Investor-Focused Takeaway: Is TBLA Right for Your Portfolio?

Taboola is a classic "picks and shovels" play for the Open Web. As users spend less time on traditional social feeds and more time on high-quality news and niche content sites, Taboola is the engine that captures that attention.

What to Watch in the Near Term: 📈

• Realize Platform Scaling: Watch for continued growth in "Average Revenue per Scaled Advertiser," which indicates that the new AI platform is actually working.
• Yahoo Integration Margins: Keep an eye on the "ex-TAC" margins to ensure the massive Yahoo deal continues to be accretive to the bottom line.
• AI Product Launches: Monitor "Deeper Dive" and other ChatGPT-like tools being integrated into publisher sites to keep users on-page longer.

Recommendation:

Taboola (TBLA) is a high-conviction growth stock with a newly proven path to profitability. For investors looking for a digital marketing stock that is underpriced relative to its cash flow and market dominance, TBLA stands out as a top-tier candidate for a 2026 portfolio.

Final Take: The Creative Cloud and the Open Web Engine

The digital product boom isn't just about who builds the best app—it’s about who controls the visibility and the infrastructure of the global digital market. As brands move away from traditional TV and search toward high-performance, AI-driven environments, two layers matter most: the transformation software that builds the brand and the recommendation engine that places it in front of the right buyer.

That’s where Stagwell (STGW) and Taboola (TBLA) stand apart.

🚀 Stagwell (STGW) — The Architect of Digital Transformation

• ✔ Digital-First Growth: Over 50% of revenue now comes from digital services, outpacing legacy "Big Five" rivals.
• ✔ Strategic AI Edge: The Palantir partnership and "The Machine" are automating high-end creative and data workflows.
• ✔ Profitable Momentum: Record new business wins from global giants like Starbucks and Adobe are driving a surge in net income.
• ➤ Best for: Investors looking for a tech-enabled growth play that benefits from the massive shift in corporate marketing budgets toward digital transformation and AI.

🌐 Taboola (TBLA) — The Gateway to the Open Web

• ✔ The Yahoo Catalyst: A massive 30-year deal that has effectively doubled their ad inventory and market reach.
• ✔ AI Performance: The "Realize" platform is turning casual readers into high-value customers through deep-learning recommendations.
• ✔ Shareholder Value: Aggressive buybacks and a shift to GAAP profitability make this a high-conviction cash-flow play.
• ➤ Best for: Investors seeking undervalued exposure to the "Open Web" with a clear path to sustained profitability and massive scale outside of social media.

Investor Insight

🧩 Want a digital-first network with high-end AI consulting and recurring SaaS revenue? → STGW

⚙️ Want a dominant performance-ad engine with massive inventory and strong free cash flow? → TBLA

Bottom Line:

The digital economy doesn’t scale on old-school commercials—it scales on data-driven creative and precision placement. Stagwell provides the brainpower to build modern brands, while Taboola provides the engine that ensures those brands are seen across the entire internet. As marketing budgets continue to flow toward measurable, AI-integrated results, STGW and TBLA aren't just participants—they are the foundation.

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Happy Trading
​— Team Premium Stock Alerts